Increasing global competition and labor productivity: Lessons from the US automotive industry

By Martin Neil Baily, Diana Farrell, Ezra Greenberg, Jan-Dirk Henrich, Naoko Jinjo, Maya Jolles, Jaana Remes
Increasing global competition and labor productivity: Lessons from the US automotive industry

An in-depth case study of the US auto industry from 1987-2002 sheds light on how global competition impacts domestic sector dynamics and productivity growth.

Studies of productivity by MGI and others have shown that when new, more productive players enter a sector previously sheltered from global competition, the sector's overall level of productivity rises. Less clear, however, is what happens at a company level to link cause and effect.

Taking US automotive manufacturing between 1987 and 2002 as representative of a sector facing increased competitive intensity, MGI examined how the "Big Three" US automakers responded to more productive Japanese entrants over the period. All three adopted innovations in processes and products to catch up with the new competitors’ performance, but at different rates and in different ways. 

MGI quantified the contributions of the process and product innovations to industry productivity growth, showing that nearly half the sector's productivity increase over the period came from the Big Three's adoption of process innovations, primarily the lean manufacturing production system learned from Japan-based firms. About one quarter came from their collective shift to new, higher value-added products, and the remainder came from increased features and vehicle quality.

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